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Question

  For the current period, inappropriate capitalization is most likely to:

A Overstate revenues Correct Answer Incorrect Answer
B Understate liabilities Correct Answer Incorrect Answer
C Understate expenses Correct Answer Incorrect Answer
D Overstate liabilities Correct Answer Incorrect Answer
E Overstate capital Correct Answer Incorrect Answer

Solution

In accounting, capitalization refers to  the process of expensing the costs of attaining an asset over the life of the asset , rather than the period the expense was incurred. Management may manipulate capitalization decisions in order to understate expenses creating balance sheet assets

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